Most people underestimate what regular saving becomes. Ask what £250 a month turns into after twenty years at 6% and the common guess is somewhere near the £60,000 you actually paid in. The real figure is closer to £115,500. Everything above your contributions was created by compounding.
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What compounding actually does
Simple interest pays only on the money you originally put in. Compound interest pays on your original money plus every pound of interest already credited. That difference is invisible in the first year and decisive in the twentieth. A £10,000 lump sum at 6% earns £600 in year one; by year twenty the same untouched pot earns over £1,800 a year, because the balance generating that interest has tripled.
The curve stays deceptively flat early on. That is why so many savers give up after three or four years, concluding the effort is not worth it. The reward is entirely back-loaded: the final third of any long savings plan usually produces more growth than the first two thirds combined.
Understand AER before you compare accounts
UK providers must quote the Annual Equivalent Rate, and there is a good reason for it. A nominal 6% credited monthly is not 6% — it is an AER of 6.17%, because each month's interest starts earning interest immediately. Two accounts advertising the same gross rate can pay different amounts depending on whether interest is credited monthly or annually. Compare on AER and the frequency question disappears.
The same logic applies to borrowing. APR on a loan or credit card includes the compounding effect, which is why a card at 24.9% APR grows a neglected balance far faster than most borrowers expect.
A realistic ISA example
Say you start a stocks and shares ISA with £10,000 and pay in £250 a month for twenty years, assuming 6% a year compounded monthly. You pay in £70,000 in total. The projection lands near £148,600, so roughly £78,600 came from growth rather than from your bank account. Stretch the same plan to twenty-five years and it reaches about £206,000 — an extra £15,000 of contributions producing nearly £58,000 more.
Halve the term to ten years and the picture reverses: about £59,000 from £40,000 paid in. The first decade produces modest gains because there is not much balance to compound. Everything depends on staying invested through the flat stretch.
The rule of 72
Divide 72 by your annual rate to estimate the doubling time. At 6%, roughly twelve years; at 4%, eighteen; at 3%, twenty-four. It is a useful sanity check when a provider or an advertisement implies unusually fast growth. If a projection claims your money will double in five years, it is implying a return above 14% a year, which is far outside what a diversified portfolio reliably delivers.